KA2e_SelfStudy_Ch04

KA2e_SelfStudy_Ch04 - File:ch04,Chapter4: MultipleChoice 1....

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File: ch04, Chapter 4: Accrual Accounting Concepts Multiple Choice 1. What is the time period assumption? a) Companies should recognize revenue in the accounting period in which it is earned. b) Companies should match expenses with revenues. c) The economic life of a business can be divided into artificial time periods. d) The fiscal year should correspond with the calendar year. Ans: c Response A: This statement describes the revenue recognition principle, not the time period assumption Response B: This statement describes the matching principle, not the time period assumption. Response C: Correct! Response D: The time period assumption states that the life of a business can be divided into artificial time periods, not that the fiscal year and calendar year must coincide. 2. Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)? a) Matching principle. b) Cost principle. c) Periodicity principle. d) Revenue recognition principle. Ans: a Response A: Correct! Response B: The cost principle states that when assets are purchased, they should be recorded at cost, not that efforts be recorded with accomplishments. Response C: The periodicity principle is another name of the time period assumption. It states that the life of a business can be divided into artificial time periods, not that efforts be recorded with accomplishments. Response D: The revenue recognition principle states that revenue should be recorded in the period in which it is earned, not that efforts be recorded with accomplishments. 3. Adjusting entries are made to ensure that: a) expenses are recognized in the period in which they are incurred. b) revenues are recorded in the period in which they are earned. c) balance sheet and income statement accounts have correct balances at the end of an accounting period. d) All of the above. Ans: d Response A: Adjusting entries need to be made to ensure that expenses are recognized in the period in which they are incurred, but d is a better answer. Response B: Adjusting entries need to be made to ensure that revenues are recorded in the period in which they are earned, but d is a better answer. Response C: Adjusting entries need to be made in order to ensure that balance sheet and income statement accounts have the correct balances at the end of the accounting period, but d is a better answer. Response D: Correct!
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4. Each of the following is a major type (or category) of adjusting entry except : a) prepaid expenses. b)
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KA2e_SelfStudy_Ch04 - File:ch04,Chapter4: MultipleChoice 1....

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